FTC Staff Says Proposed New York Legislation Would Reduce Competition and Likely Lead to Higher Prescription Drug Costs

Federal Trade Commission staff, in response to a request for comment from New York State Senator James L. Seward, stated that consumers are likely to be harmed by proposed state legislation that would limit a health plan’s ability to steer beneficiaries to a lower cost mail order provider of prescription drugs. The FTC staff comment letter expressed concern that New York Assembly Bill 5502-B, if enacted, would reduce competition between retail and mail order pharmacies, leading to higher costs and, potentially, reduced access to prescription drugs for New York consumers.

The legislation would limit a health plan’s ability to require or encourage the use of any particular mail order pharmacy by placing restrictions on all health insurance policies and insurers that provide prescription drug coverage. In particular, policies could not require that long-term maintenance prescriptions be filled at mail order pharmacies or offer incentives, such as lower copayments or deductibles, for using a mail order pharmacy. These restrictions would undercut mail order pharmacies’ incentives to bid aggressively for a share of a health plan’s business and would likely lead to higher mail order prices, the FTC staff letter stated. Some cost increases could result in higher out-of-pocket prices for beneficiaries; and in some cases, plans might reduce the scope of, or eliminate, prescription drug coverage.

The staff concluded that, although the measure may seek to enhance consumers’ ability to fill prescriptions at pharmacies of their choice, it would impede a fundamental element of consumer choice: healthy competition between retail and mail order pharmacies, which constrains costs and maximizes access to prescription drugs.

The Commission vote approving the staff comment was 5-0. It was sent to Senator Seward on August 8, 2011. A copy of the letter can be found on the FTC’s website and as a link to this press release. (FTC File No. V110013; the staff contact is Daniel J. Gilman, Office of Policy Planning, 202-326-3136.)

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